Condotel vs. Condo Financing in Destin

Thinking about a beach condo in Destin but not sure how to finance it? You are not alone. Financing can look very different depending on whether the building is a traditional condo or a condotel with hotel-style services. In this guide, you will learn how lenders view each property type, which loan options are common, what to vet before you shop, and the local factors in Okaloosa County that can affect approval and cost. Let’s dive in.

Condo vs. condotel basics

A conventional condominium is a residential building where you own your unit and share common areas through a condo association. You can use it as a primary home, a second home, or a long-term rental. An owner-elected HOA sets budgets, reserves, and rules, and mainstream lenders often treat the property as residential if the project meets standard condo eligibility.

A condotel is still deeded as a condo, but it operates more like a hotel. Many owners place their units in a centralized rental program that markets nightly or weekly stays. Onsite services like front desk, housekeeping, and bell staff are common. Because of these hotel-like features, many primary mortgage programs see condotels as higher risk or ineligible unless special conditions are met.

Why lenders treat them differently

Lenders evaluate both you and the building. With condotels, several project-level factors push the risk higher than a typical residential condo.

• Rental program and hotel features: A centralized rental pool and management control can reduce your control over occupancy. Short-term, transient use means higher turnover and different cash-flow patterns than long-term rentals.
• Project finances and governance: If the association’s budget depends heavily on transient rental income, lenders see volatility. Large single-entity ownership or significant commercial space can also reduce liquidity.
• Insurance and coastal risk: Destin properties face hurricane, wind, and flood exposure. Lenders will require appropriate hazard, windstorm, and flood coverage. High deductibles or gaps in coverage can derail approvals or increase down payment needs.
• Legal and title issues: Use restrictions, management contracts, master leases, or litigation can complicate underwriting. Clear documents are essential.
• Agency warrantability: Many mainstream loans require the condo project to meet agency standards. Condotels often fail those tests, which limits access to Fannie Mae, Freddie Mac, FHA, or VA programs.

Your financing options by property type

The right path depends on whether the building is considered a warrantable residential condo and how you plan to use the unit.

Conforming conventional loans for warrantable condos

For traditional residential condos that meet agency eligibility, conforming loans are often available. Owner-occupied and second-home buyers may qualify with lower down payments compared to investors. Investment use usually carries higher down payments and tighter underwriting. If the building is flagged as a condo-hotel, you will likely need a non-conforming option.

FHA and VA loans

FHA and VA both require project approval for condos. These programs have strict rules around finances, owner occupancy, and commercial space. In practice, condo-hotel projects in resort markets rarely meet the approval standards. If you are targeting a condotel, do not count on FHA or VA unless the specific project is already approved.

Portfolio and local bank loans

Portfolio lenders, regional banks, and credit unions sometimes finance condotel units case by case. Expect higher down payments and possibly higher rates than conforming loans. These lenders will review the association’s financials, insurance coverage, and management agreements in detail.

Commercial or bridge financing

If the building operates very much like a hotel, lenders may classify the loan as commercial. Underwriting then focuses on net operating income, capitalization rates, borrower equity, and debt service coverage. Terms are often shorter and may include different recourse and prepayment structures.

Cash and hard-money options

Some buyers go all-cash to avoid project eligibility hurdles or timing issues. Others use private or hard-money loans as a short-term bridge. These loans tend to be more expensive, so they work best as placeholders while you stabilize the asset or explore a refinance.

Down payment snapshots

These are general ranges that vary by lender, borrower profile, and building characteristics:

• Warrantable residential condo, owner-occupied or second home: sometimes single-digit down payments in certain programs, though many buyers plan for 10 to 20 percent or more.
• Warrantable condo, investment use: commonly 15 to 25 percent or higher.
• Condotel: often 20 to 30 percent or more, or portfolio/commercial programs only. Cash offers are also common.

How to vet a building before you shop

You can save time and avoid dead ends by reviewing key documents early. Ask your agent or the seller for:

• Core condo documents: recorded declaration, bylaws, plats, and use rules.
• Financials: current budget, recent financial statements, and any reserve study.
• Meeting minutes: recent HOA minutes that might reference special assessments or major repairs.
• Insurance: master policy certificate showing hazard, windstorm, and flood coverage, plus deductibles and any sublimits.
• Ownership concentration: list showing any large single-entity or developer ownership.
• Rental program details: rental management agreement, revenue split, booking control, and any owner opt-out rights.
• Contracts and legal: master leases, commercial leases, and management contracts; any pending litigation.
• Licensing and occupancy: local transient rental license requirements, if applicable.

Then ask targeted questions of the HOA or management:

• How much of the association’s revenue depends on short-term rental activity?
• Are owners required to participate in the onsite rental program, or can they opt out?
• Who controls reservations and pricing, and how is revenue reported to owners?
• Are special assessments planned for roofs, seawalls, elevators, or other capital items?
• Are there any active or threatened lawsuits involving the association or developer?
• What is the mix of owner-occupied units versus rental units?

Finally, confirm lender requirements before you tour:

• Will the lender perform a project review or need project approval for this building? What is the timeline?
• Is the building eligible for conforming or government-backed programs, or will it require portfolio or commercial financing?
• If non-warrantable, what down payment and rate scenarios should you expect?
• Are there insurance issues, like high wind or flood deductibles, that could affect approval?
• Can any rental income be used for qualifying, and what documentation is needed?

Destin-specific factors to budget for

Destin and greater Okaloosa County have many waterfront and near-beach buildings that cater to vacationers. That means condotels are common, and lenders will be careful about project characteristics.

• Flood and hurricane risk: Many coastal buildings sit in FEMA flood zones. You should expect flood coverage where required, plus windstorm and hurricane coverage. Premiums and deductibles can be meaningful line items and may affect loan approval and monthly affordability.
• Insurance market realities: Florida coastal insurance costs have risen in recent years, and availability can be constrained. Get quotes early and confirm coverages and deductibles before you finalize terms.
• Local rules and taxes: Destin and Okaloosa County regulate short-term rentals and collect tourist taxes on transient stays. Rules vary by municipality and can change. If rental income is part of your plan, factor licensing and tax compliance into your underwriting.

Smart timeline to keep your deal on track

You can reduce friction by aligning your search and financing steps from day one.

1. Clarify use and hold period. Decide if this will be a primary or second home or an investment. Occupancy intent often shapes loan options.

2. Talk to lenders before you tour. Share example buildings so they can flag warrantable versus non-warrantable projects and outline terms.

3. Get insurance quotes early. Windstorm and flood coverage can move the numbers. Do not assume last year’s premiums or deductibles.

4. Write offers with the right contingencies. Include time to review association documents, insurance, and any rental program agreements.

5. Compare lender types. If the building is non-warrantable, get quotes from portfolio lenders, local banks, and private options to weigh down payments and rates.

6. Plan your exit. Condotels can have a smaller pool of mortgageable buyers. Consider resale timelines and what it means for your pricing and hold strategy.

Work with local experts who know resort condos

You deserve clear guidance and a smooth process from search to close. Our team works daily with Emerald Coast condos and resort properties, from mid-market buildings to luxury towers. We help you match your goals to the right property type, line up the best-available financing path for that building, and navigate association documents and insurance so you can buy with confidence.

If you want a straightforward plan for a condo or condotel in Destin, connect with The Chris Carter Team. We will help you vet buildings, coordinate the right lender introductions, and position your offer to close on time.

Ready to start? Reach out to The Chris Carter Team for local guidance and a streamlined path to your Emerald Coast home.

FAQs

What is the main financing difference between condotels and condos in Destin?

• Condotels often do not meet agency condo standards, so buyers typically use portfolio, commercial, or cash options, while warrantable condos can qualify for conforming loans.

Can I use FHA or VA for a condo-hotel purchase in Okaloosa County?

• FHA and VA require project approval, which is uncommon for condo-hotel projects, so most condotel buyers cannot use these programs.

How much should I expect to put down on a condotel near the beach?

• Many lenders ask for 20 to 30 percent or more for condotels, with exact amounts based on the lender, your credit, and the project’s risk profile.

Will lenders count short-term rental income from the onsite program?

• Some portfolio or commercial lenders may, but they set specific documentation rules; ask upfront how rental pool income is treated for qualifying.

How do windstorm and flood insurance affect my loan in Destin?

• Lenders require appropriate coverage in coastal zones, and high premiums or deductibles can impact approval and affordability, so get quotes early.

What should I review before making an offer on a resort condo?

• Request HOA financials, insurance certificates, rental agreements, meeting minutes, and details on owner concentration, litigation, and special assessments.